Economic Systems
Economic Systems
ECONOMIC SYSTEMS
Who or what decides what you get?
Objectives:
Identify the factors and economic goals that influence decisions about the production and consumption of goods.
Compare and contrast the role of government in command and market economies.
Compare the advantages and disadvantages for consumers and producers in command and market economies.
Identify and explain the features of the American free enterprise system.
WHO GETS WHAT? HOW DO SOCIETIES DECIDE?
Every society must answer three fundamental economic questions:
What to produce?
How to produce?
For whom?
How societies answer these questions depends on their economic goals: freedom, efficiency, equity, growth, security, and stability.
Societies differ in the degree of importance they attach to each goal. Progress toward one goal can sometimes be achieved only at the expense of another.
WHO DECIDES WHAT IN DIFFERENT ECONOMIC SYSTEMS?
In answering the three economic questions, every society develops an economic system.
A traditional economy relies on custom and tradition t dictate production and consumption. The goals are economic security and stability.
In a command economy, decisions about production are made by a powerful ruler or central authority. The goals are equity and security.
In a market economy, individual producers and consumers coordinate economic activity. The goals are economic freedom and efficiency.
HOW DO MIXED ECONOMIES DIVIDE THE DECISION MAKING?
Nearly all countries have mixed economies, in which both the government and individuals play important roles in production and consumption.
The government’s role varies but usually involves protection (such as establishing institutions that enable markets to operate), regulation (such as stepping in when markets operate in a way that society finds unacceptable), and public benefits (such as providing certain goods and services that markets do not always provide or do not provide enough of).
WHAT ARE THE KEY CHARACTERISTICS OF THE U.S. ECONOMIC SYSTEM?
In a free enterprise system, as in the United States, individuals own the factors of production and make decisions about how to use those factors within the framework of the law.
A free enterprise system has seven key characteristics: * economic freedom
* profit motive
* competition
* equal opportunity
* property rights
* binding contracts
* limited government